That said the main questions I got were: (NB: these were actual verbatim questions from reporters).

1. Does this mean game over for other “ecommerce players”?

2. Does this news mean that the “keep inventory model” will work? Is the snapdeal model better? Which one will “win”?

3. Why does this business need so much money?

4. Will eCommerce ever be profitable? Will flipkart ever be profitable?

5. If Amazon decides to come to India, will Flipkart’s first mover advantage still remain?

Rather than answer the questions one by one, I think I will set some context first and address the questions as I see the macro picture emerge.

Indian retail market is a ~$500 Billion market. It is large. Most of this ($350 Billion) is grocery. Unorganized retail (Kirana stores, small shops, etc.) make up 92%-95% of this market.

Besides grocery, the largest number of stores are called “fancy stores” – selling everything from pencils and books to tupperware and brooms. Jewelry stores are next (in terms of revenue they might be larger than fancy stores).

Of the organized offline retailers (totaling about 1500) , fewer than 5 (changed to 5% based on IBG data) are turning profit. Everyone else loses money. Why? High real estate costs and high payroll costs, compared to unorganized retail.

When Amazon started in the US (circa 1994), they were going after a 90% organized retail market. Fewer than 5% of US retail companies were unprofitable.

Amazon was going after big box organized retail in America.

Organized retail in India is a small part of the puzzle.

Flipkart is going after the 90+%, which we know as unorganized retail.

3 major trends that drive retail in India, for the next 10 years will be increasing urbanization, worsening traffic and higher commercial and retail real estate rentals. The fourth (if it ever passes, will be FDI). I am not holding my breath for that one.

The flipkart model will do well is my perspective, given their dense logistics coverage in urban areas and minimal rentals thanks to warehousing.

Amazon surprisingly will do well as well if and when they go direct in India. The market is very large.

I dont think its game over for other eCommerce players, just like many years after Amazon, came Etsy, Zaapos and others. In India, though those markets are currently small and will grow over time, so in a few years or a decade, things will change again.

The inventory model that is flipkart’s strategy seems to be working for them. That’s the reason to raise $200 Million.

The no inventory model for snapdeal seems to be working for them as well. Snapdeal will try to help many of the unorganized retail players compete with the organized players and flipkart.

I am not sure about whether the online players will actually get profitable over the next 5 years since the offline retailers have still not gotten there in 10+ years, but the online players have a better shot at becoming profitable.

There are now according to my own count (not comprehensive) about 141 subscription eCommerce companies in the US that send you a package of “stuff” every month – from food to cosmetics, and toys for kids to cigars.

Subscription eCommerce is the fastest growing category of eCommerce according to Internet Retailer magazine.

So will this come to India soon?

There are a couple here already, but none that can solve the logistics problems with any amount of significance.

Which sub categories are ripe for subscription commerce in India?

I think subscription commerce in apparel, books and electronics are fairly niche markets. Whereas food and snacks, daily personal needs and music might be more suited for it.

Who are the likely players? New ones or the existing players?

Given the problems of managing subscription payments monthly (some may take the entire money of the 12 month subscription upfront) I suspect most existing vendors will start to offer this as a service to their partners. Which means new providers in these categories will work with Infibeam, Flipkart, Snapdeal to fulfill their customer’s request. I think there’s room for 1 or 2 good new providers, but the markets they will target will be fairly niche.

How will the new providers manage logistics?

I think there will be a smart local+central logistics player in eCommerce who will start to work this model well and deliver the goods from a local vendor.

What do you think? Any good subscription eCommerce companies in India that you are using? Are they delivering? Are they good? Am I missing any categories?

Over the next few weeks and over the last few months, many naysayers have been & will be talking about “why the eCommerce bubble is going to (or has) burst”.

Its true but misses the point.

Yes, over 21 companies that raised over $500K in funding have “merged” or have “been acquired” for paltry sums.

Yes, the model was unsustainable with discounts ranging from 30-70% off list price.

Yes, end consumers made hay while many institutional investors funded their “free shipping”, “COD” and “no questions asked returns policies”.

I am undoubtedly an optimist, so I see many wonderful first generation entrepreneurs that came out of the ordeal alive.

That can only mean one thing – serial entrepreneurs are for the taking.

Assuming some / most of them start companies again.

Some of them have talked to me about how they learned from the experience and how it will shape their new venture. Others are venturing into investing in startups.

The BEST thing that’s happened to Indian startups in the last 5 years is the rise and fall of eCommerce.

Of the 450+ eCommerce companies (of which 75+ raise some money either from VC or seed investors), a full 63% were first time entrepreneurs. (source: Microsoft India startup research).

That’s amazing. Really awesome.

They will live to tell the tale and venture again.

I have one request though:

The next time you meet an entrepreneur who had started an eCommerce venture and moved on, thank them for taking the risk. They did something so its easier for you to convince your family and relatives that starting a company is glorious. Even if it is not a runaway success it teaches you about taking risks, venturing on your own and going down a not-so-well-trodden path.

Side note: The hare and tortoise story though still has a lot of merit.

I personally know 5 companies in eCommerce, growing at 30-50% annually (not monthly as the VC’s wanted 2 years ago) and breaking even. A few companies chose to not raise capital (or truthfully no one would give them capital when they tried to raise it) were forced to focus on profit and sustaining pricing models. They are stronger and better after their experiences.

We are planning to release research findings every month week as part of our startup support program at the Microsoft Accelerator in India. There are about 50 different topics that we are curious about and are consistently doing research to find out ways to help our accelerator companies perform market research, target early adopters and focus on getting more customer traction.

This series is part of our accelerator database on engagement with startups, investors, mentors & entrepreneurship. Last week we did a report on Smartphone usage in India.

This week our focus is on the rate of companies starting and closing in the technology product space. Over the last few years Microsoft has been tracking new companies as part of its Bizspark program. Besides this we have access to several databases from multiple sources which has allowed us to consolidate all these into a single system to track startup activity. While we currently track over 73 different elements including founders, starts, closures, funding, etc. our focus is on trying to find patterns that can give us more clues to remove the roadblocks that reduce entrepreneurial failure early in the system.

We track over 6200+ entities – which includes services companies with a “product” they are building and also many viable side-projects, where the founder is generating some traction or revenue and 3900+ companies that are solely focused on building products (includes SaaS, eCommerce, traditional software, consumer Internet, etc.) in India.

On average there are about 450+ starts annually over the last 3 years, which has grown dramatically thanks to eCommerce.

While Bangalore has the most number of technology product startups overall, at neary 40%, Delhi/NCR came a close second in 2011, only to return to normalcy in 2012.

In terms of closure, 26% of companies still close within a year of them starting (either the founders giving up and moving on, or the company going dormant).

The biggest issue for closure (given that nearly 80%+ of all companies are bootstrapped) is collecting money from customers who have committed to paying for their usage of the product.

While not being able to raise funds is really #1, that seems to be a generic reason enough and a motherhood-and-apple-pie situation.

Unlike the valley (anecdotal information alone) most failed entrepreneurs dont go on to start another company or join a startup, but instead go to work at a much larger company (over 60%). Most reasons given were because of loans to payoff or pressure from parents (surprisingly not from any others).

Our recommendations are for new entrepreneurs to have a “cushion” of nearly 18 months in funds in their personal capacity before they delve into a new venture as opposed to 6 months.

We also recommend asking new customers for an advance in payment as part of the Proof of Concept instead of payment after the fact to aid in managing cash-flow more effectively.

Flipkart can already do an IPO (I think) in NASDAQ by 2012. But with $150 Million run rate (rather than $120 million), they have accelerated that by about 3 months – 6 months.

So flipkart’s good. They got a good price, they bought some revenues and have a few folks who are category experts (or better experts than their in house ones).

The two companies share 2 investors (Accel and Tiger Global) – who just yesterday announced an investment in Myntra.

So I can easily see a discussion at Accel and Tiger where both Letsbuy and Myntra come up for follow on rounds. They would first have asked Letsbuy to get funding from other VC’s – they apparently did try Sequoia and Matrix, but could not get the deal done.

Letsbuy goes back to Accel and Tiger who realize that Myntra is in a category (apparel, which is a lot more complicated than electronics) which Flipkart will take a long time to get to, but in electronics, Flipkart is mostly there.

So they chose to fund Myntra and consolidate their position with a “clear winner” by getting Flipkart to buy LetsBuy.

I consider Hitesh of Letsbuy a friend, so I may be biased on this one, but I think this is a good outcome for them too. Better to have tried to reach for the stars and climb Kilimanjaro than aim to climb Vindhyas and end up at Nandi Hills.